Why paint your house?

Seller’s will often ask a broker what should be done to prepare their home to sell. A good place to start is with “street appeal”: the first impression of your home as the buyer drives up. Yes, I’ve had buyers who wouldn’t get out of the car . . . don’t be that house, even if you’re leaving some things “as is” in other parts of the house.

Exterior painting isn’t cheap to do right – the best painters spend a lot of time preparing (scraping, caulking, etc.) before applying paint. But of all the things you can do to “stage” your home, it may have the best dollar-for-dollar payback on the sale. Plus, there’s that incalculable element of making a good impression and getting the buyer inside — at which point they may be more forgiving of other shortcomings (condition-wise) on the inside.

What should you think about when choosing exterior paint colors?

Look at the rest of the neighborhood. Yes, you can and should make an individual statement with your colors, but also try and conform to the look of the subdivision.

You want to look like your home “fits in” with the others; drive around and look for some that have done a good job with exterior paint. Choose a scheme that blends with the neighborhood or stands out in a subtle, unobtrusive manner.

Look at your neighbor’s house on both sides of you. Choose colors that don’t clash with your neighbor.

Think about your existing landscaping: do you have trees that change color? You can also consider flowering shrubs and flower gardens when selecting colors for compatibility. Big trees? We have them in our neighborhood, so remember that shade from the trees will tend to make colors appear darker.

A 2-Color scheme is usually best

In Winston Downs, most of the homes are ranches built in the 1950’s to 1960’s. This particular mid-century architecture features simple and clean lines without much ornamentation. When painting, the main architectural “details” to consider are gutters & downspouts, window and shutters (if any), doors and siding.

For the majority of homes, a 2-color scheme works just fine: one color for the siding and another for the trim. Notice on the house to the left, the soffits (the part underneath the roof overhang) are painted the same as the gutters. A safe and effective approach to color placement is to select two tints or shades from the same color strip a few shades apart. Either the lighter or the darker shade could be used for the body and the opposite for the trim. A contrasting accent color could punctuate the door. Lighter colors on a porch will make a home feel more “approachable” and welcoming.

If there are details that you want to emphasize, lighter colors will make them stand out. You can define the entryway by using color as a “Welcome” sign, but do this carefully (notice the house at “508” has a green door).

Windows are an opportunity: they give character to a house. Outlining them can give crispness to the color scheme – if that’s what you think it needs. Try not to “accent” unattractive elements such as gutters, downspouts, a protruding garage door, air conditioning units, unevenly placed windows, etc.

Consider the colors that can’t change (exterior brick for example, roofing shingles, and stone accents) and use these elements as color resources because there are numerous shades and hues in building materials. A charcoal gray shingle for example could have flecks of gray-green or gray blue that could be found on a paint color strip or incorporated into the color scheme.

Look at your color samples outdoors, at various angles and different times of the day. Better yet, buy small quantities of your colors and put some paint on the back of the house where body, trim and accent colors can be viewed together. You want to see what they look like at different times of day.

Light or Dark colors?

Light colors appear larger; Dark colors look smaller. A large home on a small lot painted white or a light color – for instance, a tinted neutral – can make the house seem larger and the lot seem smaller. Dark colors might make a home look smaller but more substantial.

Light or white is a good choice for windowsills for reflection of the sun’s heat and light. Light colors advance in space; dark colors recede. If a house is placed far away from the curb, painting it a light color will visually bring it forward.

In the past, light colors were perceived to be safe choices. However, as consumers have gained more confidence with color, and as a broader spectrum of colors have been made available for exterior use, those “traditional” approaches are changing. Today you see lots of tinted neutrals that work well with landscaping and building materials, as well as midtone values of neutrals. The homes pictured on this page are all in Winston Downs, and good examples of these principles of color selection and application.

A house is a collection of desirable characteristics: shelter, comfort, and location.

School quality is a locational characteristic that influences home values. Research shows us that homebuyers are not only aware of differences in school quality but also have revealed their preferences for higher quality schools by paying a premium for their home. This premium for school quality is among the most imp0rtant factors in determining home prices. (Neighborhood School Characteristics: What Signals Quality to Homebuyers? Kathy J. Hayes, Research Associate Federal Reserve Bank of Dallas and Professor of Economics Southern Methodist University, and Lori L. Taylor, Senior Economist and Policy Advisor Federal Reserve Bank of Dallas, 1996)

Buyers agree with Economists. So we know that buyers will pay more for a house in a neighborhood with a “good” school, but not all school characteristics appear to be indicators of school quality. Buyers aren’t willing to pay more for things like school expenditures or student body characteristics. Instead , researchers find evidence that the school characteristic for which homebuyers pay a premium is the same characteristic that economists associate with school quality, namely, the “marginal effect” of the school on student performance. (The Economics of Schooling: Production and Efficiency in Public Schools, Eric A. Hanushek, Journal of Economic Literature, Volume 24, Issue 3, Sep. 1986)

What are the “Marginal Effects” of Schools?

Economists who study schools talk about Educational “Production.” The concept of production is an important teaching and research tool, and applies to all kinds of industries – including education. For all industries, output depends on input: more materials, labor, automation, etc. equals more widgets produced. For schools, the inputs are things like teacher quality, school characteristics, curricula, etc. These are mostly controlled by school administrators and policy-makers (the School Board). The output of the educational process is the achievement of individual students.

The theory is that more and better schooling makes people more productive in the labor market, better able to participate in society, better consumers, etc. Economists, sociologists, and political scientists have conducted hundreds of investigations into post-schooling outcomes. In general, empirical studies confirm the correlation between higher levels of schooling and positive attributes after graduation.

Good Schools and The Good Life

Although the relationship of a good education and a good job is apparent to homebuyers, there are plenty of other “marginal effects” that have been studied. Individual academic achievement has also been linked to:

increasing the productivity of mothers working at home, and the effects of the mother’s education on the learning of young children(Arleen Leibowitz 1974)

the effect of education on political socialization and voting behavior (Richard Niemi and Barbara Sobieszek 1977)

the relationship between education and criminality (Isaac Ehrlich 1975)

the contribution of education to economic growth (Edward Denison 1974)

the effect of education on marriage and divorce (Gary Becker, Elizabeth Landes, and Robert Michael 1977)

A number of studies have shown how differences in the attractiveness of a particular school or school district come to be capitalized into the price of houses. Most of these studies look at the differences in the “provision of public services,” of which schooling is the most important one.

The hottest price range in Denver is where the most sales are happening, where homes sell overnight and Sellers get multiple full-price offers. This is good information for both buyers and sellers: buyers need to know how competitive the market will be for them; and sellers can use this information to best position their home price for a quick sale.

Price Buckets

A price bucket is just a way to group products by price. For example homes between $150-250,000 might be one bucket, $250-300,000 the next, etc.

You can make the buckets any increment you want, and it might be true that different areas have different hot buckets. For example, in Denver, Metrolist divides Denver County into 5 geographic areas, and the surrounding counties are split up also. Here are the geographic areas for Denver in MLS:

Notice there is a Northwest area (DNW), Northeast (DNE), etc. plus Downtown (DTD). Although buyers and sellers often use zipcode searches (because some of the internet sites are set up that way), most brokers primarily use MLS Areas to begin a search, and it’s also the way historical data (number of sales, prices, time on market, etc.) is collated in MLS.

What I’m suggesting is that you might want to make a list of “buckets” for the MLS area in which your home is located. Why? Because they’re going to be different for each area. Then when you list your $600,000 home in Northeast Denver, you won’t be as surprises to find it’s not getting the same activity as your neighbor who is priced at $350,000.

Denver Southeast (DSE)

Notice that the “hottest” price bucket in Southeast Denver is $250-350,000. With about 450 sales so far this year, it’s 50% stronger than the next best bucket ($350-450k).

Northeast Denver

Now let’s look north of Colfax Ave. and see that the hot price bucket is in a slightly different market segment.

In this area, the hot segment is $150-250,000.

Using Price Buckets in Home Pricing

Home Sellers might want to consider the distribution of sales when pricing or re-pricing their listing. If you have a $675,000 home, for example, your odds of selling go way up if you move it into the next lower price bucket.

The owner of a $575,000 listing in Northeast Denver more than doubles their odds of selling by dropping the price under $550,000.

Casting a Wide Net

While it’s true that “It only takes one . . . ” (a hopeful Seller’s motto, but let’s face it you can only sell to one buyer), you’re better off having broad appeal and broad exposure.

Website providers and brokers may try to convince you that they have some unique “marketing magic”, but buyers really want complete and accurate information that they can quickly compare with all the other listings out there. Here’s where the action is:

Almost everybody is using the internet in one way or another. Buyers browse the net before and during their relationship with a broker. The majority of buyers 1) see the home on the internet, 2) call their broker, then 3) buy the house.

The next largest group sees the home first with their broker. How did the broker find it? Right, the internet (actually MLS, which is a databahase accessed by brokers via internet).

Takeaway: make sure the home is easy to find on the web. Have the right information available.

What do Buyers want to see on the Web?

Now that you know where the buyers and brokers are, it’s important to give them what they want. Here is what Buyers value most on the web:

Unless you want to “major in minors”, you don’t need a fancy video presentation, open house, magazine ad. If you give buyers the basic information and plenty of pictures, they’ll drive by, call their broker, see the house and maybe buy it.

So what do you need a broker for? Fair question. If it’s that easy to get broad exposure (Zillow had 30 million visitors in May 2013), what DO you need the broker for? Easy: mitigation of risk. Making a mistake (contract, inspection, appraisal, loan approval, closing) can get very expensive very fast. But that’s a topic for another post.

For sellers who need to sell first, the nagging question is: Where do I move when this house sells?

There are many low-inventory markets around the country. It’s usually easier to sell in a low-inventory market, but it can be difficult finding a replacement home to buy. Finding an interim rental is sometimes the only option. The advantage of renting temporarily while you look for a new home is that you don’t need to feel rushed to buy a home that may not suit your needs. Given the uncertainty in the market, you should buy only for the long run. It could take time to find the right place.

A disadvantage of renting before buying is that you might have to pay to store some of your furniture while you rent, and you’ll have to move twice.

HOUSE HUNTING TIP: Negotiating an option to rent back your current home after closing may help you avoid a double move, or at least give you time to find a suitable rental. Rentals are also scarce in some areas, so it may not be easy to line up temporary quarters on short notice.

A rent-back agreement allows you to rent your home back from the buyers for a certain period of time. Be aware that many lenders won’t allow the sellers to rent back for more than 30 days after closing.

The cost of a rent-back varies. If there are buyers vying for your home, you may be offered free rent for a period of time. However, typically, the rent-back cost is equal to the buyers’ principal, interest, taxes and insurance prorated on a per diem basis.

This may cost more or less than you currently pay to own your home. Keep in mind that you do this for convenience, not because it’s the best deal on a rental.

Sellers who think they might want to rent back after closing but don’t have their next home lined up at the time they accept an offer should include a clause in the contract that gives them the option to rent back for a certain time.

Every week at RE/MAX of Cherry Creek, we have sales meeting in which there is an open discussion of market conditions and trends. It’s a great opportunity to find out what’s happening in different parts of the market, share leads, and solve common problems.

Yesterday there was quite a bit of discussion (and anxiety) about how dramatically the market had “slowed down” this summer. Seems to me this has been apparent for a couple of months already, but some brokers were just getting their heads around it and not liking it so much.

One of our most successful brokers was reassuring: she said, “Don’t worry. July is traditionally slow, and things always pick back up in August.”
Really? I always thought 1) August was the slower summer month, and 2) Sep – Nov is the next best time of year. So I decided to look at some recent data.

Two of the best years for number of sales and volume have been 2006 (before the crash) and 2012 (the recovery/mini-bubble). Instead of using Sold data, which represents closings that may have taken 30-60 days in escrow, I used “under contract” data. This is recorded immediately after the Seller and Buyer sign a contract and gives a good indication of actual sales pace and volume for a given period. So here is a monthly comparison between those two years:

Denver sales (under contract) during summer months

So there is a very small uptick in August, but IMO nothing to write home about. If you look at the actual numbers for 2012 (the red line), the trend is generally down in August, with another uptick in Sept/Oct.